BlackSky Technology Inc. Class A

Good morning, ladies and gentlemen, and welcome to Black Sky Technologies' second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note this conference call is being recorded. I would now like to turn the call over to Ali Bonilla, Black Skies, Vice President of Investor Stimulation. Please go ahead, Ali.

Good morning and thank you for joining us. Today, I'm joined by our Chief Executive Officer, Brian O'Toole, and our Chief Financial Officer, Henry Dubois. On today's call, Brian will provide some highlights on the quarter and give a strategic update on the business. Henry will then review the company's second quarter financial results and outlook for 2023. Following our prepared remarks, we will open the line for your questions. A replay of this conference call will be available from approximately 1230 p.m. Eastern Time today through August 23rd. Information to access the replay can be found in today's press release. Additionally, a webcast of this earnings call will be available in the investor relations section of our website at www.blacksky.com. In conjunction with today's call, we have posted a quarterly earnings presentation on the investor relations website that you may use to follow along with our prepared remarks. Before we begin, let me remind you that certain statements made during today's conference call regarding our future plans, objectives, and expected performance, including our financial guidance for 2023, are forward-looking statements. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. We encourage you to review our press release form 10 K and other recent SEC filings for a full discussion of the risks and uncertainties that pertain to these statements. And that may affect future results or the market price of our stock. Black Sky assumes no obligation to update forward looking statements, except as may be required by applicable law. In addition, During today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, adjusted imagery and software analytical services cost of sales, and cash operating expenses. The reconciliation of these non-GAAP financial measures to their most comparable GAAP measures are included in today's accompanying presentation, which can be viewed and downloaded from our investor relations website. At this point, I'll turn the call over to Brian O'Toole.

Brian? Thanks, Ali, and good morning, everyone. Thank you for joining us on today's call. I'm pleased to report that BlackSky delivered another strong quarter as we continue to demonstrate revenue growth, substantial operating leverage, and effective cost management that has us on a path towards profitable growth. Our progress is being driven by strong demand for our high-frequency imagery and analytics from major defense and intelligence customers around the world. BlackSky's unique dawn-to-dust monitoring capabilities are relied upon every day to deliver critical intelligence to decision makers on some of the world's most important events. A relevant example, illustrated on slide four, is related to the recent rebellion in Russia by the Wagner Group. In this case, BlackSky was monitoring activities related to the location of Wagner leader days after the failed coup attempt. By combining our high-frequency monitoring capabilities with other data sources, we were able to capture imagery of two planes linked to the Wagner Leader at a Belarus airfield outside the country's capital city. The intelligence collected by Black Sky was used by an independent third-party analyst to corroborate the findings and was featured in exclusive reporting by CNN. Over the days leading up to this discovery, BlackSky monitored this location over 170 times, which was an essential part of capturing this critical event. Our unique time-diverse constellation allows us to do this in a way no one else can. Another example is shown on slide five, where our dynamic monitoring capabilities were used to reveal critical strategic activities by China associated with the rapid construction of a major naval facility in Cambodia. Here you can see two images, taken about a year apart, showing the rapid construction of a Chinese military naval station off the coast of Ream, Cambodia. Although only two images are shown here, Black Sky collected over 500 high-resolution images since the first signs of construction of the pier began in June of last year. This high revisit imaging, combined with AI-enabled analytics, is an essential capability required for detecting and understanding important activities such as this, and many others like it, that are taking place all around the world. This type of critical intelligence is what governments around the world are requiring in their day-to-day mission operations, and what is driving strong demand for BlackSky's current and future capabilities. Our unique hourly monitoring capabilities combined with industry-leading AI-enabled analytics is what is differentiating us in the market and is driving our success as we continue to win large contracts and expand our customer base of major US and international government customers. Now let's turn to slide six and recent highlights that reinforce the strong momentum we are continuing to build across all aspects of our business. First, we continue to deliver strong year-over-year revenue growth. Our imagery and analytics revenue grew 51% over the prior year quarter as demand for our services continued to rise as a result of successfully winning a number of new contracts and renewal agreements with existing customers. Our imagery and analytics business delivered a 97% incremental contribution margin for the first half of the year. This high-margin imagery and analytics service business contains a low fixed cost structure that results in strong operating leverage and is the prime driver on our path to sustainable, profitable growth. Third, we won over $35 million in new contracts and renewal agreements, primarily supporting international and U.S. government agencies. We continue to see strong global demand for our high-frequency imagery and advanced analytics, especially as more and more countries look to secure access to our capacity in important regions around the world. Fourth, our success in winning new contracts this year has produced over $200 million in total year-to-date bookings, demonstrating strong customer demand for BlackSky's capabilities. We anticipate further growth in our bookings in the second half of the year as we are actively working with several major customers on a number of sizable contracts. Fifth, in June we were chosen to be added to the Russell 3000 Index, making Black Sky more visible to a wider range of institutional investors. And finally, we continue to make good progress on our very high resolution Gen 3 satellites, announcing yesterday that we signed a launch agreement with Rocket Lab for our next five dedicated launches. This agreement secures flexible launch capacity that supports replenishment, replacement, and expansion of our constellation, including the initial launch of Gen 3 satellites in 2024. The success we've had this year in expanding our customer base, coupled with the strong market demand we are seeing for our imagery and analytics services worldwide, gives us confidence that we are well positioned to realize sustainable, profitable growth. We remain on track to achieve positive adjusted EBITDA operations in the fourth quarter, which is one of our major business objectives for this year. I would now like to share some operational highlights from the quarter. Turning to slide seven. We continue to see growing demand for black skies unique capabilities across many international markets as the need for real time intelligence continues to expand due to an ever changing geopolitical and economic environment. Looking at the global market, the conflict in Ukraine and rising tensions around the world, including the Middle East and East Asia, have increased demand from various countries seeking to secure access through our dynamic monitoring and geospatial intelligence capabilities. More and more international governments are looking to invest in space-based capabilities in support of national security and economic growth initiatives. Our focus on supporting these countries is significantly contributing to our growing book of business and includes multi-year agreements for assured capacity which is a key driver towards strong long-term revenue growth. During the second quarter, we successfully closed a number of new contracts and renewals demonstrating that demand for our products and services remains strong. Here are a few of our key wins. First, we were awarded a $30 million contract renewal with an international defense sector customer. We've been supporting this customer for several years and have built a strong relationship with them over time, as they now have come to rely on Black Sky in support of their day-to-day operations. This renewal agreement expands upon an existing contract with the total value of the new contract three times larger than the previous. In addition, the new contract is a multi-year agreement, which is an expansion above the prior one-year term. The progression we've seen with this customer is representative of how many of our customer relationships are evolving as part of our land and expand strategy. Traditionally, many customers start with a small pilot or study contract with a duration of less than a year. After a successful evaluation, customers typically renew and expand the agreement, increasing either the total contract value or length of the contract term or both. As these customers fully integrate Black Sky imagery and analytics into their operations, they seek to enter into multi-year, multi-million dollar contracts for assured capacity over their region of interest. This was the evolution of this customer and is the trajectory we are on with many other international government organizations, as we will highlight in other wins we achieved during the quarter. We want a two-year multi-million dollar contract with a key international customer for ground station infrastructure. This infrastructure will be installed as an extension to the Black Sky Ground Network, providing this customer with an additional access point and improved latency performance. This new contract demonstrates the customer's long-term commitment to secure assured access to our current and future imagery and analytic capabilities. Third, We won a two-year multi-million dollar renewal agreement supporting another Ministry of Defense customer. Through this contract, we are providing them with advanced subscription-based tactical imagery and AI-enabled analytic services. We've been working closely with this customer to meet their specific requirements and are pleased to have renewed our agreement with them. And lastly, we were awarded a multi-year contract in support of an international non-government organization. With this contract, we are providing this important group with on-demand imagery and AI-enabled analytics to assist with their mission directives and their broader global efforts. BlackSky is supporting this multinational customer with commercial imagery as an essential element of their operation, and in particular, provides a means to openly share intelligence with their key mission partners. During the quarter and throughout the first half of the year, we have successfully closed on many new international sales opportunities, thanks in part to the investments we made last year in the expansion of our international sales team. This strategy is now paying dividends, as we are now growing this pipeline of business and converting these opportunities into contracts. We continue to see strong customer demand worldwide, with many customers turning to Black Sky to secure assured access to our current and future constellation under long-term subscription agreements. We're proud to support these countries and global customers and look to further capitalize on the growing international market demand. Moving on to slide eight, we continue to see U.S. government demand for commercial imagery and analytics through the expansion of projects that are utilizing the capabilities of commercial space companies in support of their space-based geospatial intelligence requirements. During the quarter, we won several new and follow-on contracts with various U.S. agencies demonstrating the ongoing demand for BlackSky's imagery and analytic capabilities across the U.S. government. One of our new contract wins was with a major Department of Defense customer to provide them with on-demand imagery and related mission solutions. This annual subscription contract is the first with this customer, and we're pleased to have the opportunity to support their important mission. In addition, we were awarded two new contracts with the NRO. These contracts are focused on exploring shortwave infrared or SWIR imaging capabilities, as well as looking at techniques to drive further reductions in latency associated with the tasking, collection, and delivery of commercial imagery. We have a long track record working with the NRO and just completed a successful first year of delivering daily high-volume advanced imagery under our historic 10-year EOCL contract. As a result of this success, we've been able to capture new contracts with this customer as they continue to look to Black Sky to support their long-term national security and defense needs. Also in the second quarter, we received a number of new work orders from NGA and Department of Defense customers. to extend and expand services we're already providing under existing contracts. The U.S. government continues to be an important customer for BlackSky, and we believe we are well-positioned to capitalize on emerging opportunities where the government is seeking to leverage commercial space capabilities in support of our nation's long-term defense, intelligence, and national security needs. Turning to slide nine. In addition to our government business, we continue to make progress on the commercial front with some exciting new partnerships and contract wins. In May, we announced that we were selected by Synmax, a leading energy intelligence company, to assist them in monitoring coal inventory at power plants. Our partnership with Synmax will create a timely and accurate energy intelligence assessment that will help support national energy transition initiatives away from fossil fuels and more towards sustainable energy resources. BlackSky was selected by CINMAX following a competitive bid process where they chose our rapid revisit low latency imagery services combined with our advanced burst imagery capabilities. Burst imagery is where our satellites focus on a single location and can take five images repeatedly over a 15 second period. The imagery collected in this manner allows for multiple view angles as well as motion tracking of objects at the location. Synmax will use our burst imagery to generate 3D volumetric products and provide its clients with critical information on cold stockpiles for effective decision making. We're happy to partner with an innovative industry leader like Synmax and support them in achieving a competitive advantage using our real-time dynamic monitoring capabilities. Last quarter, we also announced a partnership with Spire Global to create a commercially available AI-driven maritime custody service. This innovative surveillance and analytics service will utilize radio frequency emissions from ships, automatically task our satellite constellation, and collect high-resolution imagery on thousands of vessels worldwide. Our AI-enabled spectra software will integrate these images to detect and classify the vessels, estimate cargo on board, and track activity over time. Monitoring global maritime activity is becoming increasingly critical to national security to help identify illegal activities and monitor supply chain and commodity markets. In fact, we're seeing increased interest in market demand worldwide for maritime services. and are addressing this growth opportunity through partnerships like this. Moving on to slide 10. During the quarter, we continue to make good progress on our Gen 3 satellites, which are designed to deliver up to 35 centimeters of high-resolution imagery, and will also include a SWIR imaging capability. In preparation for the initial launch of our Gen 3 satellites, I'm happy to report that yesterday we signed an agreement with Rocket Lab to secure a block of five dedicated launches. This agreement locks in launch capacity for the replacement, replenishment, and expansion of our constellation and includes deployment of our initial Gen 3 satellites in 2024. Securing this launch capacity will ensure resiliency of our satellite operations and provide us with the agility to deploy satellites where and when we want in order to best meet our customer needs. We've partnered with Rocket Lab on a series of successful missions and are looking forward to expanding our constellation. In summary, we're pleased that Q2 was another strong quarter, highlighted by continuing revenue growth, improving operating leverage, and the delivery of strong bookings performance during the first half of the year. I'll now turn it over to Henry to go through the quarterly financial results in more detail. Henry?